How Debt-To Income Ratio Are Calculated

Debt-To Income Ratios (DTI) play a significant role in qualifying for a mortgage. Long gone are the days where a Borrower's DTI Ratios could be 67% and higher. Today most loan products require a DTI Ratio of 45% or less. One of the few exceptions is FHA which still allows DTI Ratios in the 50+% range. For this reason it is important for Borrowers to understand How Debt-To Income Ratio Are Calculated in order to lower them as much as possible.

A Debt-To-Income Ratios is the Percentage of the Borrower(s) Monthly Debt versus the Borrower(s) Monthly Income. In other words the Borrower(s) Debt divided by the Borrower(s) Income = Debt-To-Income Ratio (DTI). For example if the Borrower(s) have $2,000 in Monthly Debt, and $5,000 of Monthly Income:

$2,000/$5,000 = .40% DTI

Every Borrower(s) has TWO Debt-To-Income Ratios:

The first is the Housing Ratio, known as the "Front or Top Ratio"

The second is the Total Debt-To-Income Ratio, known as the "Back or Bottom Ratio".

The following is what is included in each Ratio. As I list each debt that is calculated into the Debt-To-Income Ratio's, I will indicate if the debt is just specific to a Loan Program.

Housing Ratio more commonly known as the "Front or Top Ratio" consists of:

The Loan Principle & Interest

Property Taxes

Homeowners Insurance (hazard insurance)

Homeowners or Condo Association Fees (HOA) Note: only if the property is located in a development that has a Homeowners Association.

Private Mortgage Insurance (PMI) - Only on Conventional, or USDA Rural Loans. Note: There is no PMI on Conventional Loans if Borrower's Down Payment is 20% or more.

Monthly Insurance Premium (MIP) - Is only on FHA Loans

Down Payment Assistance Loans

Second Mortgage, Line of Credit, if it is done at the same time as the First Mortgage.

Total Debt-To-Income Ratio more commonly known as the "Back or Bottom Ratio" consists of all the debts which were included in the Housing Ratio plus:

All Monthly Revolving Debt such as:

Credit Cards

Loans such as:

Car Loans

Student Loans

Personal Loans Second Mortgage, Home Equity, & Line of Credit.

Child Day Care - Only on VA Loans.

Child Support Payments

Alimony Payments

Existing Mortgage Payments (second home, investment property, etc.)

I hope I have been able to provide the above information on How Debt-To Income Ratio Are Calculated, in an easy to understand format, and help Borrower(s) to understand what debts they can reduce to lower their Total Debt-To-Income Ratio.

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

Good morning George. Great job with your post, a well deserved feature. Debt ratio can often be the challenge that kills some mortgage applications, especially when it comes to self employed borrowers.

Good morning, George Souto. I just read your blog post this morning, as it was re-posted by Roy Kelley. I have heard talk that lenders now take into consideration one's daily living expenses in their calculations of debt to income. Is this happening? Is it permissible? I mean, does a lender have the right to know how often I go to the grocery and liquor store? Please share your knowledge and insights.

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